Regulators have to front up to the cryptocurrency challenge as Bitcoin goes mainstream

Bitcoin’s recent surge in value has drawn attention to the cryptocurrency from all sides. Reportedly now at the tipping point, Tesla’s latest billion dollar bet has spurred cryptocurrency growth and duly pushed the valuation past $ 1 billion.

Individuals and companies are all immersed in the world of Bitcoin. It’s not just Tesla; Companies like MicroStrategy and Square have also bought billions. Goldman Sachs also recently decided to restart their cryptocurrency exchange desk. Others on Wall Street (like JPMorgan) are reportedly on the verge of adopting the currency and offering it to customers and employees.

The digital currency will clearly reach new highs in 2021, both in terms of value and marketing. So will it remain as volatile as ever, leading to a dramatic sell-off as seen in the past, or will the surge continue? It’s hard to tell at this point, although the momentum seems irresistible to further growth.

Regardless, anyone considering dipping their toes in this cloudy water should proceed with caution.

Regulators around the world have raised serious concerns about the financial stability of the cryptocurrency for years.

Fair and equitable enforcement of good public order regarding Bitcoin is required to keep citizens, businesses and governments safe and to encourage innovation within reasonable legal parameters. Bitcoin has already identified significant criminal and national security threats, such as the illegal use of cryptocurrency in connection with criminal financial transactions, money laundering, and protecting legitimate activities from taxes.

On Wednesday last week, the European market regulator claimed that despite the total market capitalization of crypoassets valued at more than EUR 500 billion, the prices of unregulated cryptoassets that hit such highs pose “significant risks for investors”. Interestingly, the European Commission published a legislative proposal in September 2020 to address the regulatory risks of Bitcoin, but it has not yet been incorporated into law.

Across the pond, the US Department of Justice published its enforcement framework last October. This led the way in terms of how broadly existing approaches would be applied to the new world – especially considering the risks of financial crime and sanctions.

More recently, Janet Yellen, the new US Treasury Secretary, has publicly highlighted the risks associated with what she views as a highly speculative asset and has drawn the public and corporations’ attention to it.

We should all clearly take note of the advice from regulators who are increasingly speaking out on this issue.

As Bitcoin gets even more sophisticated, additional regulatory challenges will be presented.

For example, there is still confusion around NFTs (non-fungible tokens) or scarce digital content presented as tokens as it becomes a larger and more nuanced market than DeFi (decentralized finance) applications, the existing technology platform in place behind Bitcoin – This gives businesses access to transaction history and extends the use of blockchain to complex financial use cases that go beyond simple transfers of value.

In contrast, with the advanced use of Ethereum’s open source blockchain, NFTs are driving a new wave of crypto adoption. NFTs are popular in the digital art industry, content production, and gaming. It will also play a huge role in tokenization and online banking. And it looks like bitcoin will create confusion and strife around taxes and property rights, which will lead to disputes.

In the midst of significant and rapid innovation, regulators face an uphill battle to keep up with the pace of change.

With companies and international banks betting on Bitcoin, the future of cryptocurrency has come, and it is important that we know exactly how to regulate it in order to avoid unjustified financial crime.

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